Granite Construction Inc. Q4 2008 Earnings Call Transcript

Mar. 1.09 | About: Granite Construction, (GVA)

Granite Construction Inc. (NYSE:GVA)

Q4 2008 Earnings Call Transcript

February 26, 2009 11:00 am ET

Executives

Jacque Fourchy – Director, IR

Bill Dorey – President & CEO

LeAnne Stewart – SVP & CFO

Jim Roberts – SVP & Granite West Manager

Mark Boitano – EVP and COO

Mike Donnino – SVP and Granite East Manager

Analysts

Bob Labick – CJS Securities

Rich Wesolowski – Sidoti and Company

Vance Edelson – Morgan Stanley

Todd Vencil – Davenport

Avi Fisher – BMO Capital Markets

Joe Ritchie – Goldman Sachs

John Rogers – D. A. Davidson

Fritz von Carp – Sage Asset Management

Jack Kasprzak – BB&T

Brian Rafn – Morgan Dempsey Capital

Operator

Good morning. My name is Stephanie and I will be your conference operator today. At this time, I would like to welcome everyone to the Granite Construction Fourth Quarter and Full Year 2008 Earnings Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers’ remarks, there will be a question-and-answer session. (Operator instructions) Thank you.

I would now like to turn the call over to Jacque Fourchy, Director of Investor Relations. Ms. Fourchy, you may begin your conference.

Jacque Fourchy

Good morning and thank you for joining our fourth quarter and year end conference call. I'm here today with Bill Dorey, President and Chief Executive Officer; LeAnne Stewart, Senior Vice President and Chief Financial Officer; Mark Boitano, Executive Vice President and Chief Operating Officer; Jim Roberts, Senior Vice President and Granite West Manager; Mike Donnino, Senior Vice President and Granite East Manager, and David Watts, our Chairman.

Today’s call is being webcast live and recorded. A replay will be available on the Granite Investor Relations website immediately following the call and will be posted until the close of business in February 2010. Following our prepared remarks this morning, we will as usual start the Q&A session. Please be aware that your questions along with our answers will be included in both our live transmission and any future use of the recording.

Before we get started, I would like to remind you that this conference call may contain forward-looking statements. They should be considered in conjunction with cautionary statement in our earnings release and in the company's most recently filed SEC reports. We do not intend to update any forward-looking statements made in this conference call.

With that, I will turn the call over to Bill Dorey. Bill?

Bill Dorey

Thank you, Jacque, and good morning everyone.

On today's call I will provide insight into our 2008 performance as well as a perspective on our current markets. I will then turn the call over to LeAnne to provide details of fourth-quarter financial results.

As I have discussed before, an important element of our strategic plan is captured in the phrase deliver the goods. This theme underscores our objective of constantly returning strong operating results while working toward our long-term vision to build a legacy in the construction industry. In our business, this can be a challenge, especially during a difficult economic cycle like we are currently experiencing. However, I am pleased to report that we did deliver the goods in 2008. Granite reported earnings diluted share of $3.21 compared with the prior year’s $2.71. Revenues were $2.7 billion, essentially flat compared with prior year. However, gross profit as a percentage of revenue for the year was 18% compared to 15% in 2007, and operating income was $217 million compared with $175 million last year.

Despite economic headwinds, 2008 was the most profitable year in our company's history. We greatly improved bottom line results on our large projects and capitalized on opportunities across the United States. Our best ever performance was the product of excellent execution, geographic diversification, a diversified project portfolio, and the hard work of Granite employees throughout the country. I tip my hat to all of our employees for their dedication and commitment. I am extremely proud of what we accomplished in 2008.

Now I would like to spend a few minutes discussing our current markets. In Granite West, our teams are actively bidding projects from cities, counties, water districts, school districts, various other entities, as well as from some private owners. We have however recently experienced a slowdown in the number of projects out for bit from some state departments of transportation. This may have been because of funding issues or perhaps it was because of a wait and see strategy in anticipation of potential federal stimulus money. Now that the stimulus money bill have passed, we expect these delayed projects will move forward.

In the West where there is public work to bid, it remains very competitive, and there is little activity from the private market. Although we expect President Obama’s stimulus plan will increase demand for public sector work, it is too early to know to what degree it will help our business in 2009. As part of our strategy in the West, we are leveraging the competitive advantage of our vertically integrated business model whenever possible. We are also targeting a number of large project opportunities to complement our traditional small project focus. These projects are generally complex and require a strong balance sheet and extensive operational horsepower. These requirements tend to limit the number of bidders and often provide a greater opportunity for higher margins.

The outlook for our Granite East business continues to be encouraging and our large project bid list remains robust. We are pursuing projects in each of Granite East three regions, including highway reconstruction, transit, tunnel, marine, airport and bridgework. While the tight credit market and state budget issues have affected funding for some programs, we continue to have more large projects in our pipeline than we can bid.

Now I would like to discuss federal and state infrastructure spending in more detail. First let us address the federal outlook. We applaud President Obama’s commitment to increase infrastructure spending. Clearly, this is a need in a country – there is a need in our country to increase investment in our aging infrastructure. There is also a need to build more capacity on our highways and to revitalize public transportation systems to provide a solid base for growing a globally competitive economy. The recently passed February stimulus bill contain about $140 billion in total construction spending of which approximately $27 billion will be spent directly on highway related projects.

This bill requires governors to certify that federal stimulus money will be spent on transportation and that it will be additive to revenues that have already been committed to projects. In addition, the bill stipulates that states must commit 50% of their funds within 120 days or risk having those funds redirected to other states. It is our belief that to commit money quickly, a lot of the money may be spent on smaller maintenance type projects that do not require extensive design or plan. If that occurs, it will create greater demand for local construction services and materials.

We estimate that the stimulus work will likely start in mid-to late summer. Given that timeframe, along with the normal seasonality of our business, we expect stimulus projects will begin to impact our business in late 2009 and into 2010. While we are encouraged by the promise of infrastructure funding from the stimulus will, our longer-term focus is on the reauthorization of the Federal Highway Bill, which expires in September. A substantial increase in the next Highway Bill is very important if we intend to confront our nation's critical transportation needs, granted along with other industry leaders and industry associations will actively encourage a vigorous national debate regarding a long-term strategy to substantially increase funding levels.

Turning to the state budget outlook, many states are facing severe fiscal challenges. This is particularly evident in California, where the California legislature has been working to address a historic budget deficit. After months of debate and negotiation, the legislature reached a budget compromise last week, which provides for an increase in revenue to the state and no reduction in funding for transportation. We are hopeful that the compromise will restore fiscal solvency and creditworthiness to allow California to sell Proposition 1B Bonds and fund a full-scale CalTrans building program.

Now I will turn the call over to LeAnne to provide details of our 2008 fourth quarter.

LeAnne Stewart

Thank you, Bill.

Looking at the fourth quarter, in Granite West, revenue for the division was 463 million compared with 446 million a year ago. Gross profit as a percentage of revenue was 18% compared with 19% in the fourth quarter of 2007. Operating income increased to 50 m million compared with 44 million a year ago. Contract backlog in Granite West at the end of the fourth quarter was 789 million compared with 854 million last year due primarily to a reduction in private sector backlog. Notably, private sector work accounted for 20% of Granite West revenue in 2007. In 2008, it accounted for only 10%. This decrease is primarily attributable to a reduction in private sector work in California, a state hit hard by the housing downturn.

Additionally, we continue to experience a decrease in demand from third party customers for our aggregate. In the fourth quarter, material sales decreased to 70 million compared with 86 million in the fourth quarter last year. Gross profit as a percentage of material sales decreased from 17% in the fourth quarter of 2007 to 9% in the fourth quarter of 2008, driven by continuing weakness in the private sector markets, a mix shift to lower price commercial products and year end inventory adjustments.

Turning to Granite East, revenue for the division was 163 million compared with 183 million a year ago. Gross profit was 20% compared with 10% in 2007. Operating income was 26 million compared with 14 million last year reflecting improved execution in our Granite East projects and the inter county connector project in Maryland reaching our profit recognition threshold in the fourth quarter. Total contract backlog in Granite East at the end of the fourth quarter was 911 million compared with 1.2 billion at the end of 2007. The reduction in backlog is not indicative of the opportunities available to us. Over the past several years, we have purposely slowed the growth in Granite East in order to focus on execution. Going forward, we expect the backlog in Granite East to increase as we continue to add high-quality work to our portfolio.

Turning to the balance sheet, we continue to maintain a strong balance sheet, which provides us the financial strength and flexibility to successfully navigate through today’s difficult business climate. We are conservatively leveraged with debt to capital at 27% and we had zero net debt at the end of the year. Our liquidity position also remains solid. Cash and short-term marketable securities totaled 499 million at the end of 2008, an increase of 69 million from the prior period. General and administrative expenses in the fourth quarter was 59 million compared with 63 million a year ago. Across the company, we're striving to reduce expenses and improve efficiencies. In 2008, we implemented several cost containment and process improvement initiatives designed to reduce our cost structure. We will continue to pursue these as well as others in 2009 and beyond.

I will now turn the call back to Bill.

Bill Dorey

Thank you, LeAnne.

I'm extremely proud of the performance of our company and our people in 2008. In the short term, we believe the stimulus bill should provide needed relief for our industry and Granite in 2009 and 2010. Over the longer term, we are optimistic about the growing needs for the services we provide. We are generally satisfied with the current level of bidding activity in the West and we are excited about the clear progress we made in the East and the prospects for that business in 2009 and beyond. As always, our goal is to maximize profitability by operating effectively in any business cycle. I'm confident that our teams will take full advantage of everything our markets have to offer in 2009.

I will now turn the call back to our moderator and we will be happy to take your questions.

Question-and-Answer-Session

Operator

(Operator instructions) Your first question comes from the line of Bob Labick with CJS Securities.

Bob Labick – CJS Securities

Good morning. Congratulations on a strong quarter and year.

Bill Dorey

Thanks, Bob.

Jim Roberts

Thank you.

Bob Labick – CJS Securities

First question I wanted to ask, you obviously you did a very good job in 2008 as it relates to finding other projects such as the border fence work and things, larger projects to support the West division, and Bill I think you alluded to seeking out more of those projects in 2009 and beyond. Is there anything you – that you are bidding on that you could discuss, kind of outside projects (inaudible) that we should think about going forward?

Bill Dorey

Well, I don't think it would be appropriate for us to single out any particular project or program. But I will tell you and I think this is a product of having your normal market disrupted to some degree and having it not be as strong it has been over the last several years. It triggers I think a need to get outside the box to do some things a little differently, expand our horizon, and we certainly did that in 2008, and I suspect our expectation is that we will continue to do that in 2010. I'm not here to tell you precisely where those nuggets will be found, but we are looking real hard right now for opportunities to replace that border work and some of the other work that we capitalized on in 2008. Jim, you want to add to that?

Jim Roberts

Yes, Bill. Maybe I can add a little bit here Bob. One of the things we did in that realignment program of February 2007 was create large projects group in Granite West, and I am happy to report that they are really making tremendous progress. And what we have been able to do is kind of our Granite West normal branch type construction bid and bring in a little heavy construction division mentality for large projects and kind of open up the doors to new opportunities. We're seeing design build opportunities in the West, we can chat about that a little bit, with some of the California legislative passing of the design bills and public-private partnerships, and alternative energy programs. We're looking into all of these things in the West now and really prior to our realignment, we may not have been looking into these things. So that is part of the success we had last year and we are really elevating that game in 2009 as well.

Bob Labick – CJS Securities

Okay, great. That is helpful. And then LeAnne mentioned on the material sales, some sales of third-parties have come down obviously given the economy and what is going on there, is it safe to say the lower volume is what has pressured the margins, and when should we expect a recovery or are there anything – what are you doing there to get margin recovery on go forward basis?

Jim Roberts

Bob, this is Jim again. That is a good question and it is really evident when you look at our numbers that we reported. Certainly the third-party sales of materials has been something that we have been struggling with probably for the last I would take six months of 2008. Our game plan is really simple. Our job is to become a low-cost producer in the marketplace, and we need to gear up and be as efficient as we possibly can in the materials business, and really take a wait and see attitude relative to when the market’s going to come back. We also have the opportunity to sell materials to ourselves in some of these projects that we have got going on and I think that we are going to really focus on selling to ourselves and creating an opportunity for our materials business to our internal construction business. But third-party sales are going to be indicative of when the economy comes back, and we are really just trying to be as efficient as we can, and then wait and see be able to really make things happen when the economy returns.

Bob Labick – CJS Securities

Okay, great. My last question, I will get back in queue. Obviously, a very good cost control that you mentioned as well, SG&A was down sequentially and it was a very strong quarter. Is this a good run rate for kind of go forward basis of SG&A or how should we think about the overall SG&A levels for 2009?

Bill Dorey

We have not tried, Bob, to provide a lot of detail around G&A. G&A bounces around a little bit as a product of how busy we get and how we move people in the field when we are not busy, it starts to back out onto projects when we are. So it is a little bit of – it is a little bit of guesswork. Having said that, what we’ve said publicly is that we do expect that the work that we have done in 2008 to try to position ourselves to become more effective, more efficient from an administrative standpoint should be reflected in our 2009 G&A numbers. So I’d leave you with that.

Bob Labick – CJS Securities

Okay. Thank you very much.

Operator

Your next question comes from the line of Rich Wesolowski with Sidoti and Company.

Rich Wesolowski – Sidoti and Company

Thanks. Good morning. Your West construction margins have remained at a peak level for a lot longer than I had expected them to. And I mistaken in thinking that they will have to come down to maybe at least a still good mid-teens level as the recession wears on?

Jim Roberts

Rich, that is a great question. This is Jim. I ask the same question all the time. I think that I agree the construction group in the West, I'm just so proud of them they have done an amazing job over the last 12 months and they are looking at projects. What they are trying to do is focus on opportunities that can maintain high margins. And certainly the smaller bread-and-butter work that we bid every day is very, very difficult today. So our job here is to try to capture the higher margin work and if we can do that we will continue to keep some good margins in place, but if we are forced to just kind of play in the market that everybody else is playing, then it is going to be a difficult year out in front of us.

Rich Wesolowski – Sidoti and Company

Right. I know you can't rely on the atypically strong performance you got this year from some of your branch projects, but you do see even the opportunity for similar margins in the work you bid today?

Jim Roberts

I will put it this way. I think that are similar opportunities in certain sectors of the work and we are exploring kind of as Bill mentioned, getting outside of our normal work to find different opportunities that can maintain reasonably high margins. And that is kind of the work that we are doing at our large projects group and certain other areas of our businesses. But on the average, the typical work that we do is very competitive and literally speaking margins have been reduced.

Rich Wesolowski – Sidoti and Company

Okay. By my math, the back of the envelope math, the ICC project added little bit less than 10 million in pre-tax profit, is that reasonable?

LeAnne Stewart

That is probably directionally correct. Pre-tax, pre-minority interest, the number was 17 million, Rich, and if you then back out minority interest, you are in the right ballpark.

Rich Wesolowski – Sidoti and Company

Is 15% still the best guess of East margins gross during the next couple of years?

Bill Dorey

I would not like to be that specific. What we have said is mid teens and we will stay with that.

Rich Wesolowski – Sidoti and Company

Okay. And then finally your net over billing actually shot up in the last couple of quarters, it was a good sign and surprising, it this going to continue or is this going to unwind at some pace within the next year or two?

LeAnne Stewart

That is really just a function of the particular jobs, when they start, how much retention is held. So I would call that a more challenging number to predict and asked Jim if he has any another perspectives on it, but it really does vary based on the timing of various jobs.

Jim Roberts

I’ve got one thing to add to that, both Mike of Granite East and the guys on Granite West and the guys on Granite West, everybody focuses on trying to have those buildings because it creates cash flows and opportunities for the company. We will continue to strive to do that. And LeAnne is absolutely correct that if the contractual – the contracts don’t allow it, it is going to be little more difficult. But our job is to try to get over billing and keep the cash flow healthy at all times.

Bill Dorey

If you think about what is the sort of practical metric that you can watch to try to anticipate that, the direction of that, is it we are bookings new large projects. I think you can safely assume that if we are doing our job right, we have got some over billings built into those first initial jobs. So if we book new projects, new large projects in particular, it may be something you could anticipate.

Rich Wesolowski – Sidoti and Company

Excellent. Thank you.

Operator

Your next question comes from Vance Edelson with Morgan Stanley.

Vance Edelson – Morgan Stanley

Hi, thanks a lot. You had just mentioned the competitive intensity. Would you say it is getting even more intense recently with some of the smaller players possibly on the ropes, and does that percent any challenges in terms of keeping your people disciplined from a bidding perspective as you move through the year? Thanks.

Jim Roberts

This is Jim, again. That is a very reasonable question; certainly we ask ourselves every day. Yes, I think that the smaller jobs are less competitive and even more competitive than they ever have been. And our job is to maintain that disciplines and our leaders at the operating group levels in the West and our branch management levels in the West are really focusing on that discipline and that may see a reduction in some of the small work bookings in the short term. But really the key here is to look for those project that create greater opportunities, and I do think that there are smaller companies that are struggling today, and doing work just for works sake and keeping people busy. But we do tend to always find the proper jobs to keep our businesses going. And I think with the stimulus packages and some of the things that we have seen recently passed in the California budget, and other states releasing projects that are more in our wheelhouse, I think you are going to see the opportunities for us come at the right time. And then may be a little bit on mix as Bill mentioned but we're not going to dive down into some unreasonable numbers with some of the smaller players.

Vance Edelson – Morgan Stanley

Okay. Thanks for that. And as you move forward and you continue to look for ways to increase efficiency and trim cost, how do you balance that with the desire to be able to take advantage of when the macro environment does improve and do you feel that because of that you are somewhat limited in what you can do to trim costs this year? Thanks.

Bill Dorey

I mean that’s a balance that we need to be always aware of. Our primary effort here is to improve our process. We have been through in 2008 some reduction in force. We did that with an opt out program with an early retirement program and in certain places we saw our business drop pretty dramatically. We did have some reduction in force. So we're down – for the most part down to where we think we need to be and I think the next stage is really getting into the processes that we implement, particularly from an IT standpoint to try to become more automated, to do things, to feel more commonality into our systems so that we can be efficient and capture what I characterize as the economies of scale as we continue to grow. And that will help our G&A as it relates to a revenue. I hope that helps.

Vance Edelson – Morgan Stanley

Yes, it does. And could you just remind us of your ability to move resources from the public to the private market or from private to public and from region to region, is that something you're able to take advantage of right now?

Bill Dorey

It is. And I think for example we were able to capitalize on as much of that border fence work which we did precisely because we moved resources around our system. Moving from public to private and back and forth is not a very big problem and typically we can do that within a business unit. Certainly if we are moving geographically, it becomes a little more of a strain on our people to do that. But the truth is, these times are different. Our people want to work. Our people want to work for granted and generally speaking we can find people that will move to get our work done.

Vance Edelson – Morgan Stanley

Okay, that is helpful. Thanks.

Operator

Your next question comes from the line of Todd Vencil with Davenport.

Todd Vencil – Davenport

Hi guys, thanks a lot.

Bill Dorey

Hi, Todd.

Todd Vencil – Davenport

Good comments, good outcome on the California budget last week. Prior to that, reaching that agreement, I guess, we heard a lot of noise about various state programs and state projects being shutdown, I mean did you guys – can you talk about the impact of that that you guys might have seen and how that might impact the first quarter?

Jim Roberts

Todd, this is Jim again. I don't see the first quarter being a big issue. Really what happened was when the – and it wasn’t just California by the way, I think Bill mentioned in his initial remarks, when you saw a bunch of the states kind of slowdown in the letting process, looking for a federal stimulus package and then you saw California in a budget issue, you saw really the bidding environment slowdown, and really we don't – if anything a bid and we were actually a low bidder on awards in the first quarter would most likely not affect our books in the first quarter, and probably not even in the second quarter.

But so what we saw was kind of a pushing back of the jobs that we will be bidding in the state of California and some other states, and that could have in effect at the end of year if obviously we are not able to complete as much of those jobs as we would have been able to if they had been actually let in the month of January or February. So the good part is the jobs will be out for bid. It looks like there is a full steam ahead to get the projects moving, the timing issue of a couple of months of a slowdown could cause a rolling of revenue and margins into 2010 that might have been in 2009 at the end of the year.

Bill Dorey

I think it is fair to say Jim we did not stop any of our roll out in California as a product of the noise around budget problems and so forth. We kept our projects going and in a couple of instances we offered to carry those projects using our own working capital for a month or so. We have seen this before, typically these events do not, these impasses do not last more than about a week or two, and that is really the situation we experienced this year. And the cheapest thing we can do is keep the project going rather than try to deal with the disruption of shutting it down and starting it back up. I think once again it worked out in our favor. I think just as sort of the contrary point of you around the stimulus package that you might consider, because – and I think this is true, I think we saw a number of states postured to some degree to try to get more of that stimulus money, and in doing so, they slowed stuff down, which did affect the bidding process. And so you could argue that this stimulus conversation probably hurt us for the last six or seven weeks, and now there's probably some pent up demand, so we expect that the stimulus effort will show up loud and clear over the next several months.

Todd Vencil – Davenport

Excellent. Thanks for that. On the guidance or the lack thereof this time, you guys had been in a habit I guess of providing sort of ranges for the top line and for the margins and maybe for the minority interest and you haven't done so this time, are you inclined to, are you sort of changing that practice?

Bill Dorey

Yes?

LeAnne Stewart

Todd, this is LeAnne. As you recall, when we started providing the guidance that we did last year, the ranges that you speak of, we did that in conjunction with our first quarter earnings release.

Todd Vencil – Davenport

Okay.

LeAnne Stewart

It is still our intent to do that although we will all certainly admit that there is a great deal more uncertainty this year in what 2009 is going to look like than we felt like we had in 2008. So I don't think we can possibly do that, but that is certainly our intent.

Todd Vencil – Davenport

Okay. That makes sense. And LeAnne while I’ve got you, would you want to talk about whether there were any changes in accounting estimates for the East and West that impacted the numbers this quarter or should we wait for the K?

LeAnne Stewart

There was, there are every quarter. I don't think there probably will ever be a quarter where there aren’t changes in estimates that impact a quarter. But honestly trying to go through them without having the 10-K in your hand is probably more confusing that it is helpful. We intend to file the 10 K this afternoon and so what I would suggest to all of you is when you get that don't hesitate to call me or Jacque and we will help you through any questions you may have.

Todd Vencil – Davenport

That is great. Thanks a lot.

Operator

Your next question from the line of Avi Fisher with BMO Capital Markets.

Avi Fisher – BMO Capital Markets

Hi, good morning, and thanks for taking my questions. It is refreshing to see a lot of cash on someone’s balance sheet, certainly not on mine. In her prepared comments, LeAnne mentioned something about a reduction in California awards would hit the bookings, but if I tally out CalTrans awards, this is pretty sporty with a pretty strong quarter for you guys. Now I know you have other ins and outs, where was the weakness in California?

Jim Roberts

Avi, this is Jim, and I am going to have to struggle with an answer on that one. I don't know if I have an answer relative to the bookings in California itself. We did have some nice large jobs that we did book in the last fourth quarter. So I will just have to leave it up to maybe some more detailed information on a phone call with you.

Avi Fisher – BMO Capital Markets

Okay. But CalTrans was a pretty good quarter for you right?

Jim Roberts

Well I can just think just off the top of my head several large projects that were awarded, so from that perspective the answer would be yes.

Avi Fisher – BMO Capital Markets

Yes, okay. So there was weakness elsewhere outside of the CalTrans. How much firework did you do in the quarter, was that material?

Jim Roberts

Firework in the fourth quarter I don't know if we did anything in the fourth quarter.

Avi Fisher – BMO Capital Markets

Or is that a 3Q event?

Jim Roberts

Actually most of our fire clean up work was done in the first quarter of 2008.

Avi Fisher – BMO Capital Markets

Oh, I am sorry.

Jim Roberts

And the fourth quarter of 2007.

Avi Fisher – BMO Capital Markets

I have got to check the calendar, sorry about that. And what about what border fence work, what was the value of the border fence work in 4Q and is there any fold over into 1Q?

Jim Roberts

I don't know if I have the total value of what was actually performed in the fourth quarter. I will tell you that there is some carry over into 2009, Avi, and some – it is a pretty good carryover for the amount of work that we have done in the border fence mostly in the California sector and I don’t have those numbers right off the top of my head.

Mark Boitano

In terms of the overall amount it is roughly (inaudible).

Jim Roberts

The carryover, absolutely, Mark is right.

LeAnne Stewart

Also what we have done in 2008.

Avi Fisher – BMO Capital Markets

Got you, right. And are there any projects in 1Q that you expect to hit the 30% or 25% or 30% threshold, either in 1Q or during the year? And if so what are they?

LeAnne Stewart

There is no large ones as you know on Granite West. Profit recognition events occurs on a much more frequent basis, but there are no large projects that we expect to be recognizing in the first quarter.

Avi Fisher – BMO Capital Markets

And what about later in the year?

Bill Dorey

Well maybe we could let Mike address that.

Mike Donnino

This is Mike Donnino. The five stations projects in New York which started in November will possibly hit that level in the fourth quarter.

Avi Fisher – BMO Capital Markets

And that is underground work?

Mike Donnino

No, it is a rehab of transit line, five stations obviously.

Avi Fisher – BMO Capital Markets

Got you. That's a subway work, the New York City subway work.

Mike Donnino

Yes, but this is surface work, surface station.

Avi Fisher – BMO Capital Markets

Got you. And actually speaking of that, because I think that New York was one, something you mentioned on the last quarter conference call, you mentioned that there were three projects in the East and one in the West, roughly 500 million that you expected to win. How did those go? Did you hit them all, what was your hit rate on them?

Mike Donnino

Well, we still have several projects that I‘ve just put them in the pending category. The Western Way project in North Carolina has been conditionally awarded but the owner is working on their funding. The East Side Access Tunnel project is pending. The 9B 6th Street Station project in New York is pending. Houston Metro, we continue to negotiate and work through contract terms there but the main contract there is still pending. And then the World Trade Center project that we’ve talked about for several quarters continues to move forward and we’re working on more major packages there, one of which, at least one of which should book in maybe the second quarter.

Avi Fisher – BMO Capital Markets

And as usual on the WTC project, you are only booking portions of that backlog right? You don’t…

Mike Donnino

We have booked portions of what are called work packages as they are put under contract.

Avi Fisher – BMO Capital Markets

Got you. And finally just if you could you had – there was a big increase on the balance sheet, relative to balance sheet [ph] and increases in real estate held for sale, I was wondering if you could provide a little color on that?

LeAnne Stewart

Sure, Avi. During the fourth quarter of this year, we consolidated one of the existing ventures in Oregon. All of these ventures are constantly assessed for whether we need to consolidate them within the accounting rules or not, and this project in Oregon reached a consolidation threshold in the fourth quarter and that is what caused that balance to increase.

Avi Fisher – BMO Capital Markets

Got you. And any details – I'm sorry if you said it and I missed it, on the available for sale securities and what those were and if we can expect more going forward? Obviously, you would have written it down already if you expected more, but…

LeAnne Stewart

Yes, I would say it is fair to not expect more. The investments that we took out last time was somewhat unique to our general portfolio. They were specific for a certain type of retirement benefit and so it was a fairly – I wouldn't call it rare occurrence, but not something that you are going to see very often.

Avi Fisher – BMO Capital Markets

Okay. I will read the 10-K when it comes out and follow up with you guys a little later. Thanks very much for taking my questions.

Bill Dorey

Thank, Avi.

Mike Donnino

Thanks, Avi.

Operator

Your next question comes from the line of Joe Ritchie with Goldman Sachs.

Joe Ritchie – Goldman Sachs

Good morning, everyone. Thanks for taking my questions.

Bill Dorey

Good morning.

Joe Ritchie – Goldman Sachs

Not to get into too much details on the adjustments that were potentially booked this quarter but just one question did you guys book any claims this quarter that were reversed? For instance, last year you booked a pretty significant claims adjustment on the SR22 project, I was wondering if there’s anything that occurred like that this quarter.

Bill Dorey

I don't think so there was. I don't think there is anything that I would characterize as really material in the fourth quarter.

Mark Boitano

We had a number of small issues that were resolved during the quarter but nothing of any major consequence.

Joe Ritchie – Goldman Sachs

Okay, great. And I think one of my colleagues had asked a question about the competition that you were seeing from contractors. In the past you’ve described competition from residential contractors increasing given the downturn in residential markets, are we starting to see a leg down in the non-res markets now, are you starting to see any non-res contractors enter the space, and are they fighting for small projects as well?

Jim Roberts

Joe, this is Jim. They are coming from everywhere. So I don't know if it is residential or when you say non-res I'm assuming you mean commercial and industrial.

Joe Ritchie – Goldman Sachs

Yes.

Jim Roberts

They have been in the mix for the last 18 months as well, so really there hasn't been much of a change from that perspective.

Joe Ritchie – Goldman Sachs

Okay great. And then I was wondering if you could also provide some color on the highway bill and what your expectation is there with SAFETEA-LU coming up at the end of September. I think it took about two years for us to get SAFETEA-LU after TEA-LU expired and I was just wondering what your thoughts are and what will happen in the interim as we look for a successor to SAFETEA-LU?

Bill Dorey

We’ve carved out a few paragraphs in our prepared marks because we think this is a big deal. We also think there is a fair amount of political momentum and interest around this subject currently that we have not seen in the past. We think there is an opportunity to possibly influence the outcome of this highway bill and get what is necessary to really deal with the problem and the problem is neglect and under funding of our infrastructure in this country at a federal level and frankly at the state level in almost every state as well. There is a conversation that is being, that is beginning, that is being led by the various industry associations, whether it is the Road Builders Association or the AGC or the National Stone, those major national organizations, most of which we are very active and a member, to take the current level of funding and essentially double it or in that neighborhood. That is what is required to really deal with the problem. You all watch CNN at night, and you are watching our leadership, new leadership there, and there are certainly appears to me to be no fear when it comes to spending federal money on a problem if the problem rises to the level of being one that the administration wants to take on. So we are keeping our fingers crossed, we are going to put a lot of our own effort into trying to influence that decision as best we can through our agency associations for the most part. And we are hopeful that this year that we will see a highway bill that will have rather than a $230 billion bill over a six-year period, I am not sure it is going to be a six-year bill, but just let's assume that it would be. We would see something in the neighborhood of $400 million to $500 million which would be an enormous – have an enormous effect on our business, and I really think positive effect on the transportation systems and our ability to be competitive in this country over the long-term.

Joe Ritchie – Goldman Sachs

Okay, great. Thanks for the color.

Operator

Your next question comes from the line of John Rogers with D. A. Davidson.

John Rogers – D. A. Davidson

Bill, you mentioned – talked about the stimulus program and how states might have been holding off on projects ahead of it, I am curious there has been a lot of press on shovel ready which I would assume means generally mainly the smaller projects, what is your sense of the larger project market and some of the things that haven't been hoped for to build, are they out there, and I'm talking about the implications for the west versus the east?

Bill Dorey

You know it is interesting is it seems and I tried to allude to this in our remarks. It certainly seems, particularly in the east that there is plenty of large projects, more large projects then we can bid. We cannot bid all of the plus 300 million, 400 million projects that are out there. We don’t have the staff to do it and do it right which is actually a good sign because I suspect others are in that same boat. In the West it may not be quite as evident because I think the level of competition and the manner in which the collapse of the housing market has been a little more intense in the West and probably released a little more capacity. But nevertheless there is still a number of large projects in the pipeline. If the stimulus bill would reveal the smaller projects, that would be a good sign. However, I do expect that the stimulus bill is going to stimulate some larger projects as well. In particular, in California, one of the elements of the stimulus bill as we understand it is to authorize the opportunity for CalTrans to do ten design and build projects. And if those 10 – if those design and build projects have a financing element associated with them, they don't count towards the 10. So there is a window of opportunity here for California which at least from the leaders point of view, they would like to do more design and build, typically design and build these larger projects. So my expectation is while there will be a lot of small work in the stimulus bill which would be right over the plate for us, and is perfect for us, there will also be enough innovation on the part of CalTrans to use some of this money and ideally leverage some of this money into some larger projects, ideally possibly using institutional money to do that. So if all that comes together, they can take the stimulus money and use it to do more work than if they just did it in a traditional fashion.

John Rogers – D. A. Davidson

Okay, thank you. That helps.

Operator

Your next question comes from Rich Wesolowski with Sidoti and Company.

Rich Wesolowski – Sidoti and Company

Thanks. Along the same lines of the political help, it looks like the effort to increase the gas tax in California was timing, can you give us your overview of that drive across the rest of the country?

Bill Dorey

Well, it is – I think on the first flush, we were disappointed to see the $0.12 gasoline tax not be a part of the budget resolution here in California. But after stepping away from that and understanding what it would look like had it passed, I'm not sure we are that disappointed. And the reason is that that $0.12 was really earmarked for the general fund for several years and you know how politics goes. Once it is got pointed in the direction, it might have been hard to get it back to use it for transportation. So I think the challenge for the industry and really for CalTrans in California and other DOTs is to take these types of gasoline taxes to the public. And there's the beginning of a grass-roots effort to consider doing that, try to put an initiative on the California budget to do precisely that. And of course if that happens we would be fully engaged to try to make that happen. Interestingly enough, and I'll editorialize here for just a little bit. The increase in the gasoline taxes is about the greenest tax you could possibly implement, because it does change people's driving habits and it does influence the choices that we all make relative to big cars versus little cars, if the price of gasoline is going up, and if that tax is spent directly on improving infrastructure, including public transportation, there is a lot of social benefit I think that could be had and at the same time address all the capacity issues that we are dealing with all across the country.

Rich Wesolowski – Sidoti and Company

Okay. We like it in New York because we don’t drive probably at all. Lastly, how much joint-venture cash was on the balance sheet at 4Q?

LeAnne Stewart

About 120 million.

Rich Wesolowski – Sidoti and Company

Thanks a lot.

LeAnne Stewart

Operator?

Bill Dorey

Any more questions?

Operator

I do apologize. Your next question comes from the line of Fritz von Carp with Sage Asset Management.

Fritz von Carp – Sage Asset Management

Yes. I was just wondering if you could circle back and discuss the California budget situation again and I think you were talking about bond authority to offset some of the lack of state funds, and so could you just hit those issues and would you mind?

Bill Dorey

Yes, I am not precisely sure what you're asking for. What caused CalTrans their initial problem and it affected us directly on two projects. We have two Proposition IB projects. And the CalTrans sales bonds, there is a central agency that does this and I am not able to tell you the name of the agency, I can't remember it. But they do that, and they sell bonds for the whole state. They sell bonds for CalTrans as well. And when California got into their $40 billion budget deficit with no solution situation, at least no solution on the horizon, and our legislature battling in Sacramento, that bond market dried up and that agency, that state agency, was not able to successfully sell bonds into the marketplace. Therefore CalTrans did not have the revenue stream to fund the 15 or 18 or 21B projects that they had around the state. So we were not only contractor affected by this. CalTrans then approach the contracting community that had those projects and said, we have got one of two choices, we can either shut these projects down around the end of February – January, February, we can shut these projects down and start to back up and we will pay you to do that, or you can continue to pursue these projects on your own nickel and we will reimburse you when we resolve our bond selling issue, and we will pay you an interest, and I believe the interest was 10%. So if you look at our balance sheet, we are clearly capable of running two projects for a couple of months without impacting our… the truth is 10% liquidity look pretty good to us, so we elected to move forward.

Fritz von Carp – Sage Asset Management

Okay, thank you. That is helpful, it clarifies. But just on the broader topic, if in California, I don't know about half of the funding is local and maybe a quarter or a third is from the state itself, I mean overall the public budget taking all that into account in California 2009 versus 2008, do you have a forecast or a guesstimate as to what the percentage change would be?

Jim Roberts

Fritz, this is Jim. Yes, maybe a better way to look at that is the fact that we don't see any changes going forward based on the budget dilemma that we were up against. In fact, interestingly enough, it should be even a little bit better. We had a $0.01 increase in the sales tax which there should be several hundred million reapplied back to the transpiration industry. So one of those Prop 42 funds and you’ve got to get into the California vertical scene to understand all the different issues that we are faced with, but the bottom line is, that we really we see no negative effect due to the budget dilemma in California in our industry, and we are very proud of the fact that…

Fritz von Carp – Sage Asset Management

So you think that the total market available to the public highway type stuff, the local as well as the state, the federal part of it, do you think that will – you are saying that will be about flat more or less year over year?

Jim Roberts

Well I think you’ve the stimulus money coming in as well, so it is definitely going to go up.

Fritz von Carp – Sage Asset Management

Okay. I mean it just seems like we read everyday about California cities near bankruptcy or going bankrupt, the huge hole in the overall state budget left by the housing crisis, the recession, the pension problems, how is it that they are able to insulate the infrastructure type spending from these severe problems.

Jim Roberts

That is one of the things that you have to understand the California environment over a period of time. We have some really firewalls put in place that allow the revenue stream to stay associated solely with the transportation industry, and it doesn't allow it to be brought back into the general fund unless it is borrowed with interest, and that is the last place our government, local government wants to go. So that stuff is pretty much fire walled in place…

Fritz von Carp – Sage Asset Management

But aren’t those revenue streams cyclical too? I mean there be less gas gallons pumped because there will be less people living in California and driving to work there year over year? I mean…

Jim Roberts

Certainly that will come into play over a period of time.

Bill Dorey

You know it is interesting. There is a couple of things going on and it is the Prop 42 money is sales tax on price of gasoline. So certainly people are driving less and they're getting around that, and that has impacted revenue streams in all states and the federal government as well. But Prop 42, based on the price of gasoline, if gasoline goes up to $4, that sales tax revenue actually goes up quite a bit to the state of California. So it is sort of an interesting dynamic, they get more money if the prices of fuel goes up. I think the other things that’s worthy of mentioning is in the local cities, counties, primarily counties, I don’t know what percentage of their work is funded this way, but a large percent of that work is funded through sales tax increases that have been voted by the general public, and they are regularly voted in absent sales taxes and we see them all over the state and really they are all over the west because people are concerned with the state and the federal government having I think the fortitude to deal with their local issues. So we do rely on that quite a bit and we don't see that changing.

Fritz von Carp – Sage Asset Management

Now a fair amount of the highway spending in California, at least a few years ago was not refinanced [ph] because they were taking additional monies out of the general fund for highways. Has that still been the case like last year and will it be forward?

Jim Roberts

I don't think – this is Jim. I don't feel that happening especially with the general fund situation that we have today. Again it is basically two separate parts, the drawn fund, the highway fund, the transportation fund is a separate fund today and is not being…

Fritz von Carp – Sage Asset Management

In the past it was heavily augmented with general fund revenues but now…

Jim Roberts

They were commingled and that’s what’s happened over the last four, five years. They have been redistributed back as individual parts.

Fritz von Carp – Sage Asset Management

Okay.

Bill Dorey

I want to beat this subject to death, this is sort of a qualitative response. But Governor Schwarzenegger has really built his second term around transportation and he's held pretty firm to that, and he's not retreated from that at all, particularly in this last go round, so we’re a big fan of his right now.

Fritz von Carp – Sage Asset Management

Okay. Thanks guys.

Operator

Your next question comes from line of Jack Kasprzak with BB&T.

Jack Kasprzak – BB&T

Good morning, everyone.

Bill Dorey

Good morning, Jack.

Jack Kasprzak – BB&T

Hi. Bill, with regard to the next federal highway bill, if the stimulus package is successful in creating a million jobs, which I think is more or less the estimate over sort of an 18 month period and the federal highway bill isn’t increased by $30 billion or so, don't the Democrats risk losing those million jobs right before the 2010 election it they don’t pass the big highway bill?

Bill Dorey

I think the answer is yes. And clearly the other piece of that equation would be housing and development coming back at some point. I guess that is really what’s released all the capacity into the marketplace that is creating if you want to call it hysteria in the market. So you know the best of both worlds would be, yes, let’s get a highway bill that addresses the needs of the country and I don't know that I would even view that as a job creation bill, I'd view it more as an investment into the kinds of things that government should be investing into and clearly there’s jobs that would follow. But then also if we got any kind of light at the end of the tunnel around that same period with real estate development, you’ve really got quite a good story at that point.

Jack Kasprzak – BB&T

Okay. With regard to margins, I know you guys didn't give 2009 guidance per se in terms of earnings but just wanted to ask about margin expectations. In the east I think you guys have said more normalized operating margin might be in the high single digits, the 8% range, and obviously these have had a very good fourth-quarter. Any reason to think that previous expectation for the east should be any different going forward?

Bill Dorey

Well, what we have said and I will just take this call and Mike can modify if he feels he needs to. What we have said for more than 12 months now is that we expected our long-range go forward gross margin for Granite East would be in the mid-teens. And certainly there’s clients that come in and out of a system and jobs that reach the 25% threshold profit recognition, that may influence that from one quarter to the next up or down. But that is our – what we have been saying, I don't think there is anything that we see into the future at least that would cause us to change that at this point. So we would like to stay with that.

Jack Kasprzak – BB&T

Thanks for that. And on the west where obviously you are seeing a lot of competition, margins are – operating margins are closer to I guess 10% or so, but historically you know during downturns that margin has been in the mid-single digits, this downturn looks pretty bad, at least for the time being, would you think there is risk for that sort of level in the mid-single digits?

Bill Dorey

That goes to Jim.

Jim Roberts

It is pretty early to tell in 2009 still. There's a lot of good stuff happening out there. So I think that that would be pretty interesting if we got to that level, but I'm going to say that it is way too early to really suggest anything like that would happen. And again we will give better guidance, As LeAnne suggested, at the end of the first quarter of hopefully if we can do that but way too early to tell right now.

Jack Kasprzak – BB&T

Okay.

Bill Dorey

You know, as we sit around here and anticipate those kinds of questions, the truth of the matter is we were sitting around here, feeling – not knowing how our year would come together in 2008 about this time a year ago. And we had a lot of the same concerns and doubts that you all may have and look what happened. So these years come together, they all build a personality, but typically that personality isn’t real clear at this time of the year.

Mike Donnino

Yes, I think it is helpful to just to remind everyone that work in the west is being bid and built from most of it’s been bid and built in the year in which we are operating. So that is why, as Jim said, it’s a little too early to tell, in fact it is too early to tell.

Jack Kasprzak – BB&T

Well I mean it is an interesting situation and along the lines of what Fretz was just asking where I got on, the headlines about California look dismal in terms of the state budget situation and would I think make any reasonable person very concerned about almost perhaps any company operating in California much less one with 40% of their business and yet as you said, Bill, you had a very good year, and your Granite Construction business has held up very well, I guess, that is a struggle with the macro concerns versus good execution on your part.

Bill Dorey

One thing just to add to that, Jack, I think it was LeAnne who mentioned in the scripted remarks earlier was that only 10% of our business is actually in the private sector. And if you look at what just happened with the California budget passing, the transportation, the public transportation sector is strong. And then you add back in the federal stimulus monies, no doubt the private sector is going to dry things down. We have migrated away from the private sector over the last 24 months because there hasn't been work there. So the public sector we believe there is a healthy public sector in the state of California…

Jack Kasprzak – BB&T

But the number of…

Mike Donnino

What you are saying was maybe true 30 days ago, 40 days ago, when things were slowing up in the air, but they have come together, they’ve got – California’s legislature’s got a game plan in place now and I think we’ve hit the ball. So the game is on.

Jack Kasprzak – BB&T

Fair Enough. Thanks very much for that.

Operator

Your next question comes from the line of Brian Rafn with Morgan Dempsey Capital.

Brian Rafn – Morgan Dempsey Capital

Good morning everybody. Superb job as always.

Bill Dorey

Thank you.

Brian Rafn – Morgan Dempsey Capital

Question for you Bill, you talked I think about SAFETEA-LU a little, it was quite an onerous process the last time around, what would be your preference at Granite to have a quicker resolution to the size of the bill, get it funded, or would you rather allow it to drag out if you could get a higher dollar facility?

Bill Dorey

Well, it is so much like a quick question. It depends on how much more you could get and how long you have to wait for it. I think our preference would be to have a vigorous debate and get a sizeable increase above the current goal and get it done quickly.

Brian Rafn – Morgan Dempsey Capital

Okay.

Bill Dorey

I think it would coincide quite nicely then with the stimulus bill and we would see a higher level of workout for bid for the next five or six years which the industry needs. And I think the state agencies in particular that are planning this work, there really need some visibility relative to funding to do it right, and so the lack of a gap in between those two, the stimulus bill and the highway bill, I think is important.

Brian Rafn – Morgan Dempsey Capital

Okay. If you look at the American Society of Civil Engineers just came out with their infrastructure report card, Army Corp of Engineers. They defined this US infrastructure degradation problem of about 1.6 to 2.2 trillion. If you have a $27 billion facility from the stimulus and another $300 billion bill, it is only about 16% of that projection from the American Society of Civil Engineers. What are your thoughts about having an infrastructure bank, or getting an ongoing facility like a Fannie Mae or a Freddie Mac to address this business, because the government, I mean this is an entity that finances $5 billion Nimitz class aircraft carrier in four years, and it is kind of fits and starts, so what are your thoughts on an infrastructure bank?

Bill Dorey

I'm not sure I've got to tell you. I'm not sure I'm smart enough to know precisely what it is that you are proposing or how to do it. I will tell you this that we are seeing work, active work that we are bidding, that we are pursuing, that we are having discussions on and with various agencies where private money, not so much infrastructure bank money, but private money is a product of that discussion. I think we will see more of that and I think more of the agencies are interested in this concept because they are trying to find ways to leverage the money they have to try to address the problems that they believe they have an obligation to deal with and no matter how you cut it, there isn't enough money to deal with all those problems. I guess on the one hand, that's a good thing, because there is plenty of demand for the things that we provide and one of the challenges that the agencies have and I think the industry has as well is to try to work together to figure out how to leverage the public money that is in the question with other money to try to get more work done.

Brian Rafn – Morgan Dempsey Capital

Okay. On that comment, you talked I think about – you said Granite has – doesn't have the total capacity estimated to chase all of the $300 million to $400 million whether some of it might be design and build projects, do you get a sense, if we get a doubling in financing to what you guys wanted, 400 billion, 500 billion, I think your comments in the past of saying that there are really only half a dozen or so qualified design and build road builders in the United States, is there enough supply you think on the industry side, Granite plus everyone else, to service those needs and the infrastructure?

Bill Dorey

Okay. So let me make sure I'm making it clear here so that when our competitors listen to this, they won’t be insulted. There is a handful of design and build contractors in the country who are in a position to lead a team on a mega project, a handful being, let’s say, it’s less than 10. But there is plenty of design build regional contractors that can participate on a team and add great value when they are on a team. So I want to be careful there that I am recognizing others that do this work. The work is – if we get increased funding, it won't all come out as mega projects, there will be just biggest lots and lots of smaller projects that will soak up plenty of capacity. No doubt improved markets all through the range of value of projects from very large to very small and the answer is that with regard to will there be enough capacity, yes. The industry will build the capacity over time. But in that building process, during that building process, generally speaking there is an opportunity to get top margins until that capacity does build to match the demand. There's that window where it obviously gets pretty good and then when demand slows down, there is that window where it gets pretty awful, and we are experiencing some of that right now where capacity has to shrink too.

Brian Rafn – Morgan Dempsey Capital

Okay. In your discussions, Bill, when you guys talked about, and I think Jim talked about looking at other projects, not necessarily just design and build, are you doing anything out, and I think you guys used the word wheelhouse, are you doing anything out of your core transportation side. You mentioned something in marinas, you are doing anything with dams, or canals, that are maybe at the edge of what you historically have done?

Bill Dorey

Sure. We traditionally had a dam under construction generally. I'm not sure we have one under construction this minute but typically if you look through our history, we have got a major dam somewhere in the portfolio. Canal work is not something that we would not do. In fact we do some small canal work, ditch lining work down in Southern California probably every day. Yes, we have the capability to step into pretty much anything that sounds or looks like general engineering contracting. And we have got a wide variety of talent in the organization and we can bring that talent to bear on most any project that is closely related to what we generally do.

Brian Rafn – Morgan Dempsey Capital

Okay. I think that is fair. In the past, you guys have talked, you’re vertically integrated in the West. As the markets have turned on, obviously infrastructure certainly is one of the bright spots, is there any capacity to add vertical integration with aggregates in the east with assets being available given that permitting and those types of issues take a long time?

Bill Dorey

I'm sorry. Can you repeat that question?

Brian Rafn – Morgan Dempsey Capital

Sure. In Granite West, you guys are vertically integrated with the asphalt plants and aggregate gravel pits and that type of thing. You don't see that as much in the east with the markets being down, with multiples of EBITDA and companies available for sale, being depressed, is there a greater opportunity for you to find those aggregate assets in the east to vertically integrate some of your Granite East operations? You have talked in the past that maybe someday we will start to look at that. Is that then – I guess my question is, has that been accelerated at all given what you seen the markets?

Bill Dorey

Well, we do not have any target identified at this moment. It is possible that this environment would bring us an opportunity and I think we are in a position to entertain for the most part almost anything. I think our balance sheet is strong. We have got capacity to do to grow if we choose to do that. We will – believe me when I tell you we will not sacrifice our balance sheet to stretch to do almost anything at this point because our first priority is to stay strong I think in this environment. But we do think there will be opportunities around the system both in the East and in the West and we have got our ear to the ground.

Brian Rafn – Morgan Dempsey Capital

Okay, sure. You have talked, Bill, in the past about bench strength and you have talk I think in the last couple of conferences about cost containment, and you mentioned I think early retirement. If we get a doubling in financing and this infrastructure takes off, and the neglect is repaired, does that pressure your bench strength, does it force you to begin reflating that, or is – do you start losing people, trade, skills and estimators and that sort of thing, does that put pressure on may be competitor people hiring your people away?

Bill Dorey

Well I suppose you could paint that scenario. It is a problem I suppose we would love to have. We have got bench strength, we have got teams that we are holding together in anticipation of some effective stimulus bill. We are not out hiring people in anticipation of the stimulus bill, or waiting to see what that brings us. But we will build the capacity. We are a company that people want to work for. So if there’s works out there, we are an employer that – we're the employer of choice in a lot of areas. We put the word out that we have got work and people come.

Brian Rafn – Morgan Dempsey Capital

Okay.

LeAnne Stewart

With that, we’re happy to go back to operator for closing remarks. We have got another call to get on with our employees. Thanks, Brian.

Brian Rafn – Morgan Dempsey Capital

Okay.

LeAnne Stewart

Operator?

Operator

At this time, we have reached the allotted time for questions. I would now like to turn the call over to Bill Dorey for closing remarks.

Bill Dorey

All right. Thank you and thank you for your questions. Let me summarize. We are very pleased with our 2008 best ever performance. We do have work to bid but our markets remain competitive. We believe the stimulus bill should be a positive event for Granite in our industry, but it is too soon to attempt to quantify its impact. We expect to grow our large project backlog in both Granite East and Granite West in 2009 and I'm confident that our teams will take full advantage of everything our markets have to offer.

As always, we appreciate your interest in Granite Construction. Thank you for joining us this morning. If you have any additional questions, don't hesitate to get in touch with us. We will be in Watsonville for most of the day. Thank you again and have a great day.

Operator

Thank you. This concludes today's conference call. You may now disconnect.

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